No Credit Score, No Home?

brij2006 · May 2014

Thought I would toss this article out here. Especially with the discussion this week about purchasing a home without a credit score, and no longer having a credit score.

brij2006 · May 2014

Of course TN didn't insert the link. Hopefully it works as a hyperlink.

No Credit Score, No Home

Xstatic3333 · May 2014

Hmmm, I do agree that the big banks have set up a system to try to keep people in debt. We've found that paying off cards monthly works for us (and let's us earn back in points), but it is good that there are mortgage options for those that can't or don't want to.

hoffse · May 2014

Honestly? I would rather just have a credit card that I pay off every month. There's absolutely nothing about that that equals "getting back into debt." Hell you can use it on a pack of gum once a month, pay it off, and use cash the rest of the time to maintain a credit score.

People have to be responsible for the financial decisions they make. I would rather have a credit card, accumulate points, and have an excellent credit score than be credit-less. It can really make life a hassle if you don't have a credit score.

brij2006 · May 2014

It's actually really interesting to see this article.

I work in insurance and rates are partially based on credit score. So when I run an insurance quote for someone with bad credit, it gives them a higher rate than someone with good credit. However, the industry has adapted the VantageScore Rate, and now the people with no credit score (not bad) get the best rate there is possible.

It's kind of crazy to see. When I started in this industry 5 years ago I wondered how someone could get the #1 rating, because I rarely ever saw it. After doing some researching I learned that the only ones who receive that #1 rating are ones with no score at all.

Now when I quote someone and they get the #1 rating, I want to congratulate them for their hard work, but figure that's probably not my place.

short+sassy · May 2014

My first set of tenants (they also became friends) after I bought my home saw a house in our neighborhood they really wanted to buy. It was a bit odd, because they weren't even in the market for a house at the time, but so be it.

I kind of side-eyed it at the time because I knew they had no credit and tried to gently explain what a problem this might be. Not bad credit. Just no credit. Again, weird to me neither one of them had a credit card, considering they were in their late 20s but not my business. They just always had the attitude they refuse to pay interest and will save for what they need. Definitely a good idea and the way more of us should live...but get a darn credit card along the way that you pay off each month to at least establish credit!

They assured me all was fine. They already had a pre-approval, everything was hunky-dory. And, in my head, I'm like oooookkkkaaaaayyyyy. Really don't think you can buy a house without a credit history, but I'd already warned so I didn't say anything. Everything is going along swimmingly for them...until the loan goes to underwriting. And everything fell apart.

They were told in no uncertain terms they needed someone to co-sign the loan. That there was no way they could buy a house without a credit history. Personally, I still don't understand why it even went that far before they were told that.

In the end, much the husband's chagrin, the wife's father obtained the loan for them. Ooohhh...but the worst part....he refused to co-sign. Either the house and loan are JUST in his name or no deal. They agreed to it. So now they spent a substantial amount of time and money fixing up their house. They are (I'm assuming) faithfully paying the mortgage every month. And still have zero credit history (rolling eyes).

I'm surprised I still have a tongue, lol. I had to almost physically bite it off sometimes to keep my opinion to myself of how CRAZY PANTS and FOOLISH this whole idea was.

Much to my credit (if I do say so myself, lol), I kept my oool and advised them to get a couple credit cards...charge and pay off each month. When they buy their next car, finance it for at least six months. Then pay it off. And maybe in a few years they will have acquired enough credit history to buy the house from her father for whatever the loan balance is at that time. Just too much that can go wrong and squirrelly with the current configuration.

sillygoosegirl · May 2014

I thought the credit agencies had always looked at utility payments. Also, a credit card will show up as being in good standing with no late or missed payments even if you never change anything on it. Eventually the bank will realize you aren't using it and probably start changing you fees or force you to close out the account, but I don't think that charging on the card is actually necessary for it to help you build credit.

I think a more correct title would be "No Credit Score, No Mortgage." If you had money you could lend out, would you hundreds of thousands of dollars to someone who didn't have a recent past history of paying back smaller loans? I don't think I would. But that doesn't mean people with no credit history can't save up to pay cash for a home.

I find it much more appalling that employers can look up your credit score and make hiring decisions based on it. I had a friend who experienced this for over a year of unemployment, before being told in one of his rejections why he was being rejected, and it turned out to be over a error in his credit record too. But even if it hadn't been an error in his record, it's a scary thought. It's hard to keep up or improve your credit score if you lose your job, and while it makes absolute sense not to loan money to someone without a job, not hiring someone because they don't have a job creates a really vicious cycle.

Xstatic3333 · May 2014

It's interesting to me that we talk a lot on this board about using cards occasionally to keep them active or they will be closed, yet in my experience this rarely happens. I have several lines of credit that I have gone 3-5 years or more without using at various times, and this has never happened to me. Sears threatened to close my card recently (after about 18 months without use) but sent me a letter of warning first. I would have just let them if we weren't trying for a mortgage soon. I have a Victoria's Secret line of credit that I opened in college and haven't used in 7+ years though, and it's still on my credit report. H also has several lines still listed on his report that he opened in college to get free t-shirts and has never even used once, and he just turned 35!

Sisugal · May 2014

Credit Unions will often use alternative sources for mortgage approval- history of rental and utility and car payments in place of credit card.

KatieCutie05 · May 2014

I totally agree with the article because after reading and hearing Dave speak on all the dangers of "trying to build credit"... I realized he's right. That shit just isn't worth it. I don't want to play kissy face with the bank. When I was 18 I was told to get a credit card so I could build my credit and learn responsibility. Hahaha... Like most college students I learned the hard way. I started paying it in full every month but as it usually happens I one day didn't have the money to pay it off and I slowly built that balance. But I somehow still didn't think I was doing that bad because after all ... All credit card debt problems are when someone has over 20k in CC debt and I still made on time payments every month and the bank awarded me with a great credit score. I was 5k in CC debt while meanwhile racking up 100k in student loans but I still had a great credit score so I win. Hahaha wrongo! I got screwed. I fell into the trap. I wasn't blessed with parents that taught me about money. I followed society. And I was just old enough to make my own decisions and just young enough to make all the wrong ones. .... I even watched all of my friends do the same thing.... Get a credit card to build a credit score then end up in credit card debt paying interest every month and just about maxing out their credit card..The problem isnt can you trust yourself to have a credit card and pay it off every month.... The problem is that we as a society are telling our kids and teenagers that they need to go into debt to survive in the world..... Then wonder why there's such a debt problem today and million s lose everything. And when you really look back at how it all began... It was just because they tried to build a credit score.

jtmh2012 · May 2014

Getting a credit card does not equal going into debt. I've had my own credit cards since I was 18 and have followed one simple rule since then. If it isn't in the bank account, it doesn't get charged to the credit card. Even if I lost my job tomorrow, there's money to payoff whatever the balance is on the card.

short+sassy · May 2014

I'm really surprised at the number of responses talking about having credit cards they haven't used for years and the cards have stayed open. It has been my experience that, if I haven't used a card at all in 1 year...sometimes 2 years at the max...the card automatically closes.

Though I've had it happen more with store credit cards. Maybe those are more persnickety. But I've had a Dress Barn, Home Depot, and Target card all closed on me at various times due to non-use. I've also never gotten a notice that they were closed. Its on my credit report that I see they were closed.

StashaT12 · May 2014

While I do agree that having/using a credit card doesn't necessarily mean going into debt - the issue that DR touches on is that the majority of the population uses the card improperly, and thus DOES accumulate the debt. His stance on getting a mortgage without a credit score (no debt or credit card = no FICO score), is to find a mortgage company that does manual underwriting. Most mortgage companies either don't offer this or don't know how. He suggests his ELP's for this process. OR paying for a house in cash, and not going back into any debt.

hoffse · May 2014

StashaT12 said:

While I do agree that having/using a credit card doesn't necessarily mean going into debt - the issue that DR touches on is that the majority of the population uses the card improperly, and thus DOES accumulate the debt. His stance on getting a mortgage without a credit score (no debt or credit card = no FICO score), is to find a mortgage company that does manual underwriting. Most mortgage companies either don't offer this or don't know how. He suggests his ELP's for this process. OR paying for a house in cash, and not going back into any debt.

I understand that, but frankly I think it's important for people to learn to use credit responsibly. The reason we all live the lives we do is because of the FDIC and low-interest debt financing. If you want an example of what life would be like without it, visit inland Jamaica. There's no FDIC-equivalent there, and mortgage rates were around 18-20% the last time I visited. That's why you see so many houses that are half-built - everything is paid for in cash as people earn it, and sometimes it takes generations to build one house.

As for buying a house cash.... When interest rates are this low, buying a house cash is just throwing away tens of thousands of dollars in potential investment income. Every time I read a forum post where somebody wants to do that, I cry a little.

No Credit Score, No Home?

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